TEXT - rates Alliant Holdings I LLC

Thu Dec 6, 2012 11:49am EST

Overview
     -- Alliant LLC is refinancing its current capital structure in 
conjunction with its announced $1.76 billion leveraged buyout by KKR.
     -- We are assigning our 'B-' counterparty credit rating to Alliant LLC 
with a stable outlook.
     -- We are also revising our outlook on Alliant Inc. to stable from 
positive.
     -- We expect to withdraw all ratings on Alliant Inc. following the close 
of the transaction.

Rating Action
On Dec. 6, 2012, Standard & Poor's Ratings Services assigned its 'B-' 
long-term counterparty credit rating to Alliant Holdings I LLC (Alliant LLC) 
following the announced leveraged buyout of the company by private-equity firm 
Kohlberg Kravis Roberts (KKR; all debt related to the transaction is to be 
issued by Alliant LLC. Alliant Inc. is the current issuer of existing debt) 
The outlook is stable.

At the same time, we revised our outlook on Alliant Holdings I Inc. (Alliant 
Inc.) to stable from positive, reflecting the higher prospective debt level 
following the restructuring. We expect to withdraw all ratings on Alliant Inc. 
following the close of the transaction.

We also assigned our preliminary 'B-' debt and '3' recovery ratings to Alliant 
LLC's proposed senior secured facilities consisting of a $705 million term 
loan B due 2019 and $100 million revolving credit facility (undrawn at 
closing) due 2017, indicating our expectation for meaningful (50%-70%) 
recovery of principal in the event of a default. We also assigned our 
preliminary 'CCC' debt and '6' recovery ratings to the company's proposed $450 
million senior unsecured notes due 2020, indicating our expectation for 
negligible (0%-10%) recovery of principal in the event of a default.

Rationale
The rating actions are in response to our belief that the company's credit 
metrics will deteriorate following the proposed recapitalization. The new 
capital structure will result in a higher debt level of $1.155 billion ($705 
million term loan B and $450 million unsecured notes) immediately following 
the transaction, compared with $823 million ($558 million term loan and $265 
unsecured note) as of Sept. 30, 2012. As a result of the increased debt load, 
the company's debt-to-adjusted EBITDA ratio will weaken to 7.7x for pro-forma 
2012 from 5.4x as of Sept. 30, 2012, and falls below our expectation for the 
company to maintain financial leverage at 6.5x or less. Similarly, EBITDA 
fixed-charge coverage weakens to 2.0x for pro-forma 2012 from 2.3x for the 12 
months ended Sept. 30, 2012. The stable outlook reflects our view that the 
company will be able to de-lever at a measured pace during the next few years 
because of strong revenue and earnings growth.

Although the proposed recapitalization will lead to a weaker financial 
profile, we believe the company's overall credit characteristics are 
commensurate with the current rating level. This view is supported by strong 
and peer-leading organic revenue growth of about 4.7% (excluding revenues 
associated with construction business generated by a team of brokers hired 
from Aon in June 2011) and very strong EBITDA margins of 32% for the first 
nine months of 2012. These were primarily driven by Alliant's specialty niche 
focus and strategy of hiring and retaining key producers. In addition, the 
company produced positive operating cash flows of $72 million during this 
period and has consistently produced positive operating cash flow every fiscal 
year since its acquisition by current owner, The Blackstone Group, in 2007.

Our rating on Alliant LLC is based on the company's limited financial 
flexibility arising from a highly leveraged capital structure, weak EBITDA 
fixed-charge coverage metrics, revenues and earnings volatility in certain 
programs, and a low-quality balance sheet with negative tangible net worth. 
Somewhat offsetting these weaknesses is an experienced management team that 
focuses on maintaining Alliant LLC's enhanced competitive position through 
strategic acquisitions, the hiring of seasoned producers, and strong organic 
revenue growth. In addition to its diversified revenue base and niche 
expertise in specialty programs, Alliant LLC differentiates itself through 
very strong EBITDA margins and good liquidity as demonstrated by its history 
of positive operating cash flows.

Outlook
The outlook is stable. Despite difficult market conditions and low 
property/casualty insurance rates, we expect Alliant LLC to maintain its 
favorable revenues and earnings growth by attracting experienced producers, 
successfully integrating its recent and potential strategic acquisitions, and 
showing strong base performance as measured by peer-leading organic revenue 
from its diverse revenue streams and specialty niche focus. We expect the 
company to sustain its track record of very strong EBITDA margins of about 30% 
and strong and positive operating cash flows for full-year 2013. In addition, 
we expect a debt-to-adjusted EBITDA ratio of about 7.0x or lower and EBITDA 
fixed-charge coverage of about 2.0x for full-year 2013, and for these metrics 
to improve.

We could take positive rating actions on the company within the next 12 months 
if Alliant LLC maintains its favorable revenues and earnings performance and 
is able to reduce its debt-to-adjusted EBITDA ratio to 6.5x or less on a 
sustained basis. Alternatively, we could take negative rating actions on the 
company if Alliant LLC does not meet our expectations or if management 
increases financial risk tolerance to a level that is no longer in line with 
the current rating level.

Related Criteria And Research
U.S. Insurance Broker Criteria, April 22, 2008

Ratings List
New Rating

Alliant Holdings I LLC
 Counterparty Credit Rating
  Local Currency                        B-/Stable/--       
 Senior Secured                         B-                 
  Recovery Rating                       3                  
 Senior Unsecured                       CCC                
  Recovery Rating                       6                  

Ratings Affirmed

Alliant Holdings I Inc.
 Senior Secured                         B                  
   Recovery Rating                      2                  
 Senior Unsecured                       CCC                
  Recovery Rating                       6                  

Ratings Affirmed; Outlook Action
                                        To                 From
Alliant Holdings I Inc.
 Counterparty Credit Rating
  Local Currency                        B-/Stable/--       B-/Positive/--
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